Context

There should be seismic changes in the way Indians (including the Union government) think about absolute poverty and its alleviation, macro-growth policies and micro policies, especially those on agriculture.

Areas to rethink our policies

First rethink: We are not a poor country any more, not with just 4.5 per cent of the population classified as poor .

Second rethink: We have always considered food consumption as the ultimate criterion of poverty. Time has come to dismantle this ecosystem — an ecosystem that is biased against the poor farmer, against climate change mitigation and also against efficient use of water and energy.

Third rethink: 4.5 per cent of the population as poor is not right, does not sound right, and isn’t right. The rethink has to be about defining poverty in relative, not absolute terms.

Fourth rethink: Poverty is now not just about food but living standards — sanitation, housing, piped water, electricity, education, health, and jobs. And on each of these elements, the focus should shift to quality, not quantity.

Fifth rethink: We should recognise that that the country has a messed up and archaic agricultural policy, one that was not even fit for the earlier poor economy times.

New Approach

1.Basic income programme

• The new approach towards poverty alleviation should involve targeted income transfers.

• Under a targeted basic income programme, which is a top-up scheme, the government transfers the poverty gap (difference between per capita consumption of the household and the poverty line faced by the household) into the bank account of the poor.

• The cost of such a programme is likely to be between Rs 2.5 and 3 trillion and it will ensure nobody has a consumption below the poverty line.

• India’s current expense on poverty alleviation programmes is approximately Rs 3.4 trillion and the cost to make one person non-poor through the PDS in 2011-12 was Rs 24,000.

• The same for MGNREGA was Rs 40,500.

• Therefore, assuming perfect targeting, a basic income programme is likely to cost substantially less that the current policies and it will ensure that the poverty rate is reduced to zero based on the higher poverty line.

Benefits of direct benefit transfer

• The direct benefit transfer mechanism of the government has been able to resolve targeting problems for a bulk of the 430 government schemes and subsidies.

• The current PM-Kisan programme that provides income support to approximately 14 crore farmers is an example of how, through DBT, the government can provide direct income support as its focal policy towards poverty alleviation.

• Such a policy is likely to help the government in rationalising and consolidating its poverty reduction programmes, thereby freeing up resources for other sectors in the economy.

2.Tax Reforms

•  The government should focus on bringing more people under the tax net at the higher income brackets.

• Our recommendation towards achieving the same would be to reduce both corporate income tax rate and the highest personal income tax rate to a flat 25 per cent.

• Therefore, to improve revenue realisation from direct taxes, the government should focus on improving compliance by reducing the highest slabs of the tax rate. 

3. Investment Reforms

• The Indian economy requires adequate investments in critical areas such as road, railways and water.

• Therefore, the government needs to rationalise its expenditure and tax rates to ensure reallocation of resources.

Conclusion

Our pace of poverty reduction has improved over the last five years. We can augment this through a targeted basic income policy and free up resources for other sectors of the economy. Times have changed and so should our policies towards poverty alleviation.